December
15, 2009

      


      To the
Investors party to the Purchase Agreement

      with
Axion Power International, Inc.

      c/o
Special Situations Fund III QP, L.P.

      527
Madison Avenue, Suite 2600

      New York,
NY 10022

       

      Ladies
and Gentlemen:

       

      David
Gelbaum and Monica Chavez Gelbaum (collectively, the “Gelbaums”) are the
co-trustees of The Quercus Trust (the “Trust”). As of the date hereof, the
Gelbaums and the Trust are the sole beneficial owners as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), of an aggregate of 18,571,430 shares of the Common Stock, par value
$0.0001 per share (the “Common Stock”), of Axion Power International, Inc. (the
“Company”), consisting of 8,571,430 shares of Common Stock held of record by the
Trust (the “Trust Shares”) and warrants held of record by the Trust (the “Trust
Warrants”) to acquire an aggregate of 10,000,000 shares of Common Stock (the
“Trust Warrant Shares” and, collectively with the Trust Shares, and the Trust
Warrants, the “Trust Securities”).

       

      As of the
date hereof, The undersigned understands that you (collectively, the
“Investors”), propose to enter into a Purchase Agreement (the “Purchase
Agreement”) with the Company, providing for the purchase and sale of an
aggregate of · shares (the
“Shares”) of Common Stock, in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D, as promulgated by the
U.S. Securities and Exchange Commission (the SEC”) under the Securities Act of
1933, as amended (the “Act”). Capitalized terms used herein have the respective
meanings ascribed thereto in the Purchase Agreement unless otherwise defined
herein.

       

      In order
to induce the Investors to enter into the Purchase Agreement and to purchase the
Shares as provided therein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Gelbaums and the
Trust, on their own behalf and on behalf of their Affiliates, hereby jointly and
severally agree as follows:

       

      1.    
      The Gelbaums and the Trust own the Trust Shares
and the Trust Warrants and, upon any exercise of the Trust Warrants, will own
the Trust Warrant Shares, free and clear of all the following (collectively
called “Claims”) of any nature whatsoever: security interests, liens, pledges,
claims (pending or threatened), charges, escrows, encumbrances, lock-up
arrangements, options, rights of first offer or refusal, community property
rights, mortgages, indentures, security agreements or other agreements,
arrangements, contracts, commitments, understandings or obligations, whether
written or oral and whether or not relating in any way to credit or the
borrowing of money. There are no agreements, understanding or arrangements (i)
granting any Claim with respect to the Trust Securities to any person or entity,
(ii) restricting the right of the Gelbaums or the Trust to sell the Trust
Securities, (iii) restricting any other of their rights with respect to the
Trust Securities, or (iv) limiting or restricting the rights of the holder of
any of the Trust Securities. Except for the Trust Securities, neither the Trust,
nor the Gelbaums nor any of their respective Affiliates beneficially own any
capital stock of the Company or have the right to acquire beneficial ownership
of any capital stock of the Company, except upon the exercise of the Trust
Warrants in accordance with their terms.

      


      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      2.           During
the period (the “Lock-Up Period”) beginning on the date hereof and ending on the
earlier to occur of (i) the first anniversary of the Closing Date or (ii) a
“Change of Control” (as defined below), neither the Trust nor the Gelbaums will,
and shall cause their respective Affiliates not to, except as provided herein,
offer, sell, contract to sell, pledge, grant any option to purchase, make any
short sale or otherwise dispose (collectively, a “Transfer”) of any Trust
Securities, or any shares of Common Stock of the Company, any options or
warrants to purchase any shares of Common Stock of the Company, or any
securities convertible into, exchangeable for or that represent the right to
receive shares of Common Stock of the Company, hereinafter acquired, by any of
them or with respect to which any of them has beneficial ownership within the
rules and regulations of the SEC (the “Additional Trust
Securities”).

       

      As used
herein, “Change of Control” means, at any time (i) any Person or any Persons
acting together that would constitute a “group” for purposes of Section 13(d)
under the Exchange Act (other than the Trust, the Gelbaums or their respective
Affiliates) shall acquire beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) in a single transaction or a series of related
transactions, of more than 50% of the aggregate voting power of the Company; or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving effect to
such transaction, the stockholders of the Company immediately prior to such
transaction own less than 50% of the aggregate voting power of the Company or
the successor entity of such transaction; or (iii) the Company sells or
transfers its assets, as an entirety or substantially as an entirety, to another
Person.

       

      3.           Except
as expressly provided herein, the foregoing restrictions are expressly agreed to
preclude the Gelbaums and the Trust from engaging in any hedging or other
transaction which is designed to or which reasonably could be expected to lead
to or result in a Transfer of the Trust Securities or the Additional Trust
Securities during the Lock-Up Period even if the Trust Securities or the
Additional Trust Securities would be disposed of by someone other than the
Gelbaums or the Trust. Such prohibited hedging or other transactions would
include without limitation any short sale or any purchase, sale or grant of any
right (including without limitation any put or call option) with respect to any
of the Trust Securities or Additional Trust Securities or with respect to any
security that includes, relates to, or derives any significant part of its value
from the Common stock of the Company.

       

      4.           The
Gelbaums and the Trust hereby consent to the entry of stop transfer instructions
with the Company’s transfer agent and registrar prohibiting the Transfer of the
Trust Securities and the Additional Trust Securities except in compliance with
this Lock-up Agreement.

      


      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      5.      
    Notwithstanding the foregoing, subject to the
requirements of applicable law and any policies or procedures regarding the sale
of stock by insiders of the Company, nothing herein shall prohibit the Gelbaums
or the Trust from exercising any of the Trust Warrants in accordance with their
terms.

       

      6.        
  The Gelbaums and the Trust understand and acknowledge that (i) the
Company and the Investors are relying upon this Lock-Up Agreement in connection
with the entry into and consummation of the transactions contemplated by, the
Purchase Agreement, and that this Lock-Up Agreement may be enforced directly by
the Company or any of the Investors, (ii) this Lock-Up Agreement is irrevocable
and shall be binding upon their respective heirs, legal representatives,
successors and assigns, (iii) any breach or threatened breach of the terms of
this Lock-Up Agreement would cause irreparable harm to the Company and the
Investors for which an adequate remedy is not available at law and that,
therefore, in additional to any other rights that they have at law or in equity,
the Company and each Investor shall be entitled to injunctive relief and to an
order of specific performance in the event of any such breach or threatened
breach and shall not be required to post any bond or other security in
connection therewith, (iv) this Lock-Up Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument and (v) this Lock-Up Agreement
shall be governed by, and construed in accordance with, the laws of the State of
New York.

      


      
        
          
            
              
                	 
      	
                        Very
      truly yours,

                      
	 
      	 
      
	 
      	
                        The
      Quercus Trust

                      
	 
      	 
      
	 
      	
                        By:  

                      	
                          

                      
	 
      	 
      	
                        David
      Gelbaum, Co-Trustee

                      
	 
      	 
      
	 
      	
                          

                      
	 
      	
                        David
      Gelbaum, Individually

                      
	 
      	 
      
	 
      	
                        /s/
      Moncia Chavez Gelbaum   

                      
	 
      	
                        Moncia
      Chavez Gelbaum,
Individually

                      


              

            

          

        

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      5. 
         Notwithstanding the
foregoing, subject to the requirements of applicable law and any policies or
procedures regarding the sale of stock by insiders of the Company, nothing
herein shall prohibit the Gelbaums or the Trust from exercising any of the Trust
Warrants in accordance with their terms.

       

      6.   
       The Gelbaums and the Trust understand
and acknowledge that (i) the Company and the Investors are relying upon this
Lock-Up Agreement in connection with the entry into and consummation of the
transactions contemplated by, the Purchase Agreement, and that this Lock-Up
Agreement may be enforced directly by the Company or any of the Investors, (ii)
this Lock-Up Agreement is irrevocable and shall be binding upon their respective
heirs, legal representatives, successors and assigns, (iii) any breach or
threatened breach of the terms of this Lock-Up Agreement would cause
irreparable harm to the Company and the Investors for which an adequate remedy
is not available at law and that, therefore, in additional to any other rights
that they have at law or in equity, the Company and each Investor shall be
entitled to injunctive relief and to an order of specific performance in the
event of any such breach or threatened breach and shall not be required to post
any bond or other security in connection therewith, (iv) this Lock-Up Agreement
may be executed in counterparts, each of which shall be deemed an original and
all of which shall together constitute one and the same instrument and (v) this
Lock-Up Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.

      


      
        
          
            
              
                	 
      	
                        Very
      truly yours,

                      
	 
      	 
      
	 
      	
                        The
      Quercus Trust

                      
	 
      	 
      
	 
      	
                        By:  

                      	
                        /s/
      David Gelbaum  

                      
	 
      	 
      	
                        David
      Gelbaum, Co-Trustee

                      
	 
      	 
      	 
      
	 
      	
                        By:  

                      	
                          

                      
	 
      	 
      	
                        Monica
      Chavez Gelbaum,

                        Co-Trustee

                      
	 
      	 
      
	 
      	
                        /s/
      David Gelbaum  

                      
	 
      	
                        David
      Gelbaum, Individually

                      
	 
      	 
      
	 
      	 
      
	 
      	
                        Moncia
      Chavez Gelbaum,
Individually